Technical paper
Back to backtesting: integrated backtesting for value-at-risk and expected shortfall in practice
This paper aims to reflect the current state of the discussion on the validation of market risk forecasts by means of backtesting.
Calculating capital charges for sector concentration risk
This paper proposes a methodology to quantify capital charges for concentration risk when economic capital calculations are conducted within a multifactor Merton framework.
Balance-sheet interest rate risk: a weighted Lp approach
In this paper, the authors introduce a new interest rate risk measure that is a product of two factors: one related to the distance between assets and liabilities in the Lp-space of financial instruments, and the other linked to the performance of the…
A three-state early warning system for the European Union
In this paper, the authors develop an early warning system for forecasting a financial crisis of the magnitude of the 2007–8 crisis for the European Union (the EU14).
Predictive fraud analytics: B-tests
In this paper, the authors look at B-tests: methods by which it is possible to identify internal fraud among employees and partners of the bank at an early stage.
A real option analysis on retiring existing coal-fired electricity plants in the United States
This paper looks at the conditions under which a reasonable green policy by a US state encourages the early replacement of existing coal plants with new natural gas plants.
Black was right: price is within a factor 2 of value
CFM’s quants verify Fisher Black’s intuition on mean reversion still applies today
The revised P&L attribution test and the suitability of new proposed thresholds
Montoro, Spinaci and Georgi assess the effectiveness of the FRTB’s P&L attribution test
A general framework for constructing bank risk data sets
This paper proposes a general framework for constructing bank risk data sets, which provides an integrated process from data sources to comprehensive risk data sets.
Value-ranked equity portfolios via entropy pooling
This paper demonstrates how to directly incorporate common value-investing idea into the portfolio optimization process.
Systematic testing of systematic trading strategies
This study reviews the various statistical methodologies that are in place to test multiple systematic trading strategies and implements these methodologies under simulation with known artificial trading rules in order to critically compare and evaluate…
The short-term Danish interbank market before, during and after the financial crisis
This paper studies the microstructure of the short-term uncollateralized Danish interbank market before, during and after the financial crisis, and into an era of negative interest rates.
Skin in the game
This paper analyzes the cost of putting aside capital as skin in the game (SITG).
Vibrato and automatic differentiation for high-order derivatives and sensitivities of financial options
This paper deals with the computation of second-order or higher Greeks of financial securities. It combines two methods, vibrato and automatic differentiation (AD), and compares these with other methods.
Polynomial upper and lower bounds for financial derivative price functions under regime-switching
In this paper, the authors present a new approach to bounding financial derivative prices in regime-switching market models from both above and below.
Procyclicality of capital and portfolio segmentation in the advanced internal ratings-based framework: an application to mortgage portfolios
This paper investigates the procyclicality of capital in the advanced internal ratings based (A-IRB) Basel approach for retail portfolios, and identifies the fundamental assumptions required for stable A-IRB risk weights over the economic cycle.
Analytical expressions of risk quantities for composite models
In this paper, the authors obtain analytic expressions of different actuarial and statistical quantities for a general class of composite models derived from the McDonald’s family of probability distributions.
Structural changes in the interbank market across the financial crisis from multiple core–periphery analysis
In this work, the authors employ the KM–ER algorithm to characterize the internal organization of eMID.
Networks of common asset holdings: aggregation and measures of vulnerability
This paper quantifies the interrelations induced among financial institutions by common asset holdings.
Covering the world: global evidence on covered calls
Typical covered call strategies may be decomposed, using a risk and performance attribution methodology, into three components: equity exposure, short volatility exposure and equity timing. This paper applies that attribution methodology to covered calls…
A latent trawl process model for extreme values
This paper presents a new model for characterizing temporal dependence in exceedances above a given threshold.
Managing adverse temperature conditions through hybrid financial instruments
This paper proposes temperature-based risk management using hybrid financial instruments built on weather derivatives.
Forward-looking and incentive-compatible operational risk capital framework
This paper proposes an alternative framework for setting banks’ operational risk capital, which allows for forward-looking assessments and limits gaming opportunities by relying on an incentive-compatible mechanism.
Modeling operational risk depending on covariates: an empirical investigation
In this paper, the authors apply a dynamic extreme value theory (EVT) model based on a nonhomogeneous Poisson process incorporating covariates to estimate frequency, severity and risk measures for operational risk.